It’s not often that you read about activist investor Dan Loeb praising the chief executive officer (CEO) of a company in which Third Point Management holds a stake, but that’s precisely what happened in the hedge fund’s July 31 investor letter, which laid out its thoughts on some of Dan Loeb’s stock picks.
Third Point first took a stake in Shell (NYSE:SHEL) in 2021, doling out $750 million in the Dutch oil giant. He had this to say in the hedge fund’s investor letter:
“While shares have performed well since we initiated the investment, the company still trades at staggering discount to intrinsic value and represents a compelling investment at current levels,” Loeb wrote on July 31.
The billionaire went on to say, “At just 7x consensus earnings, we see significant further upside in the stock. Enhanced focus and discipline will allow Shell to generate mid-teens shareholder returns via cash flow per share growth and dividends through the end of the decade, with additional upside from potential portfolio actions.”
That is one of many stocks that Third Point owns. Here are three other of Dan Loeb’s investment choices worth owning for the long haul.
Danaher (DHR)
As Loeb stated in Third Point’s Q2 2023 investor letter, Danaher (NYSE:DHR) was one of the fund’s five top losers in the second quarter.
In general, it was not a good quarter for the Third Point Offshore Fund, which gained just 1.1%, 760 basis points less than the S&P 500, and 590 basis points behind the MSCI World Index. As for Danaher, it lost 4.8% between April and June.
However, Loeb is still quite optimistic about the diversified conglomerate moving toward becoming a pure-play life sciences tools and diagnostics company.
“Danaher has created significant value over decades through its unique operating system and superior M&A, and its low leverage balance sheet should allow it to take advantage of depressed valuations in the life science tools sector to continue to add to its portfolio,” Loeb wrote.
“More importantly, Danaher stands to benefit from the surge in new projects and drug discovery spending occurring in the post-Covid world.”
Third Point has held DHR since Q3 2015. It is the fund’s third-largest position, valued at $693.1 million as of March 31, and accounts for 11.4% of its $6.1 billion in assets.
It’s down, but it’s not out.
Bath & Body Works (BBWI)
Bath & Body Works (NYSE:BBWI) is Third Point’s fourth-largest holding, valued at $503.0 million. The fund first acquired the retailer’s shares in Q3 2022 at an estimated price per share of $35.78. It’s up nearly 10% over the past 9-12 months.
Why does he own BBWI and the other two mentioned in this article?
“The other 55% of the book is a diversified portfolio of companies such as PCG, Danaher, Bath & Body Works, FIS, AIG, Jacobs Engineering and others that are undervalued and have important upcoming catalysts such as spinoffs or operational turnarounds that should drive value in the near to medium term,” Loeb wrote.
Bath & Body Works’ situation isn’t so much an operational turnaround as it is a rightsizing post-Covid.
In December, Loeb’s firm made a regulatory filing that said it had built a stake of over 6%. It was looking to see the board refreshed after approving excessive executive compensation when cost cuts were in order.
In March, BBWI added Thomas Kuhn to its board. The financial executive’s addition and two others in February were enough to keep Loeb on the sidelines for the next year.
The 20 analysts that cover BBWI are generally optimistic about the stock. Thirteen of them rate it Overweight or an outright Buy with a $47.50 target price, 21% higher than where it’s currently trading.
Jacobs Solutions (J)
Jacobs Solutions (NYSE:J) is a small position for Third Point. It barely makes the top 25, accounting for 0.36% of the fund’s $6.1 billion in assets. It picked up the shares in the first quarter of 2023 at an average price of $120.78. It’s already made more than 10% on its bet.
Many in the media still refer to the engineering firm as Jacobs Engineering despite changing its name last August to Jacobs Solutions. Heck, even Loeb refers to the old name. But I digress.
The change was made to go after three significant growth opportunities: global infrastructure modernization, climate response and the digitization of industry. All are considered multi-decade opportunities.
That is probably a big reason for Loeb’s investment.
On Aug. 8, Jacobs reported mixed Q3 2023 results. Revenues were up 10% over last year’s third quarter, excluding currency, to $4.2 billion. Earnings were down 2.2% year-over-year to $1.82 a share. However, what wasn’t mixed was its backlog. The company hit $28.9 billion, putting it near record levels for the company.
Jacobs Solutions continues to progress toward separating its Critical Missions Solutions business, a plan first announced in May. It should be completed in fiscal 2024.
The world’s infrastructure is badly in need of a makeover. That makes Jacobs Solutions a winner in the long run.
On the date of publication, Will Ashworth did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
